How much upfront money do I REALLY need to buy a home?
A common question I get asked often is how much upfront money do I really need to buy a home and what kind of costs are involved before I get the keys to my new house. That’s a great question because nobody wants to be surprised with being told that they had to cough up some cash that they weren’t prepared for.
For the sake of this article we will be talking about the “upfront money” you’ll need to get the ball rolling after you make an offer on a house.
But first…let’s briefly talk about the money you may or may not need at the end or “closing” of your transaction.
Down Payment: Depending on the type of loan you will be using you will either have no down payment or a down payment ranging from typically 3% up to however much down payment you want to use. There are many options and each loan has Pro’s and Con’s. If you would like to view my Oregon Home Buyers Guide that explains the pro’s and cons of each just go here
Buyers Closing Costs: Buyers closing costs cover things like property tax and insurance reserves (if you are including your property taxes in your payment). title insurance and escrow fees, lender fees and more. Buyer’s closing costs can typically run from about 2% to 4% of the purchase price.
There are many variables to how much the closing costs can be and you may or may not have to pay any or all your buyers closing costs yourself. You may be asking “What do you mean I may or may not have to pay my buyers closing costs?”
Let me explain…Depending on the market conditions in your area it may be possible to ask the seller to pay your closing costs for you. Keep in mind though that those closing costs the seller is paying for you comes right out of their proceeds at closing so it is very common practice for the buyer to make a very strong offer if asking the seller to pay your closing costs. Follow your real estate brokers advice closely as they will know whether or not this may fly depending on the state of the market you are currently in.
There are other factors that determine the amount of closing costs too…In the lending world you can chose a higher interest rate and it can lower your closing costs, or you can chose a lower interest rate and it can raise your interest rate.
Let’s get back to the upfront money you’ll need…Even if you’re buying with no down payment loan you’re still going to have to come up with some costs associated with the home before you get the keys.
Some of those costs are optional and some or not so let’s cover these upfront costs right now. The first cost you need to be aware of or one that you’ll be asked for first after you make an offer is called earnest money. I shouldn’t really refer to it as a cost because it’s actually an upfront deposit. Earnest money is an amount of money that you’ll need to put up as a deposit for the home you’re making an offer on. Depending on the purchase price of the home you’re buying, earnest money could potentially only be $1,000 it could be $2,000 and it may be 1% of the purchase price which is very common. The bottom line is that it’s negotiable.
Earnest money will be required when your offer is accepted and you’ll be asked to write a check for the agreed-upon earnest money amount. That check will then be deposited with the escrow or title insurance company that will be handling the final papers. It’s held safely in a neutral account so no one individual gets to hold on to it. It is simply held until closing when it can then be credited toward your down payment or your closing costs or in some circumstances it can even be refunded to you at closing if it’s not needed for down payment or closing costs .
The purpose of the earnest money is to show the seller that you’re serious about buying . The only way that you can really lose your earnest money is if you walk away from the transaction for no reason. If for some reason the loan doesn’t close or God forbid if the financing falls through or if something happens through no fault of your own you would get that earnest money back. Talk to your real estate agent as they will advise you and give you the details regarding the refund of your earnest money and how much earnest money you should put down.
You should also consider getting a home inspection. Home inspections are highly recommended. They can vary in cost depending the size and type of home. A typical home inspection runs about $300-$400. A home inspection is money very well spent. The home inspector will go over the home with a fine-tooth comb top to bottom and they will alert you of any major or minor issues. This is highly recommended but not required but it is a very inexpensive piece of peace of mind .
There are other inspection costs you may need or want. Depending on the property you choose you may have a well versus city water. It is a good idea to have the well “flow tested” this is about $150. If you have a septic system on the property versus city sewer a thorough septic inspection will run 800-1200. The well and septic inspections are more typically for rural home.
If your new home is on a sewer system a “sewer scope” runs about $125. A sewer scope inspection is a video camera inspection of the sewer line to make sure connections are good. Last but not least you’re also going to need a home appraisal. Appraisals start at about $700.I say start because the appraisal fee depends on many factors and the fee can go up 200-300 pretty fast if the home is in a rural location, has acreage or a lot of square footage. The appraisal gets done after you do any of your home inspections. Meaning, for your safety we don’t order the appraisal until you are satisfied with the inspections you are having done. The appraisal fee is paid to an appraisal company and it is required to be paid for upfront.
The appraiser’s job is to determine the value and condition for you and the lender. Essentially they will determine for you and the lender that the price you are paying and the amount the bank is lending is reasonable and that the home is in average or better condition. The appraiser does a general overview on the homes condition but is not the appraisers job to fully inspect the property. That is what you hire the home inspector to do.
I hope this has given you a good overview…
Would you like an easy way to look into your home loan options?If so, just click here to fill out this 2-minute online form.You’ll learn…What your low and no down payment options are…What price range of home you’re eligible for…If the seller can pay your closing costs…..and more!
If you’d like experienced help making an informed home loan choice please contact:
Sunrise Mortgage Group
365 Warner Milne Rd. #206
Oregon City, OR. 97045
A Division of Finance of America Mortgage LLC
NMLS # 1071 Equal Housing Lender
If you prefer you can get the ball rolling by going here.
Disclaimer: This resource guide and the loan overviews are not commitments to lend. Prices, interest rates and guidelines are subject to change without notice. Some loan products may not be available in all states or areas. Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product, please make sure to compare loan types when making a financing decision.
Kurt Nilsen-Mortgage Advisor
503-939-6370 or KurtsHomeLoans@Gmail.com
Sunrise Mortgage Group
365 Warner Milne Rd. #206
Oregon City, OR. 97045
A Division of Finance Of America Mortgage LLC